Rejected FTT legal challenge the first of many

A UK government legal challenge to the proposed
European financial transaction tax (FTT) is unlikely to be last, experts have
said, after an EU court rejected the bid.

The case had attempted to block moves by 11
European countries to impose a financial levy with extraterritorial rules that
could impact traders based in London’s financial district.

However, the court said that, as the
details of the tax have yet to be finalised, it could not pass judgment on
them.

“The
Court finds that the contested decision does no more than authorise the
establishment of enhanced cooperation, but does not contain any substantive
element on the FTT itself,” the European Court of Justice (ECJ) said in a
statement.

However,
regulatory experts said the current challenge is just the beginning of wider UK
action to prevent the FTT from damaging the City of London.

“Today’s
decision was widely anticipated as no FTT has been agreed, but this does not
preclude the UK government or others from making future challenges,” said Jorge
Morley-Smith, director, tax at UK buy-side body the Investment Management
Association (IMA).

The
ruling effectively approves the use of enhanced cooperation by groups of
European member states, enabling them to create their own cross-border
legislation without needing approval from all 28 members. The rejection of the
challenge to the FTT is due to a lack of formal proposals, leaving the door
open for future contests.

Christian
Voigt, product manager at technology provider Fidessa, explained: “The court
has rejected the UK government’s case because there is no firm agreement on how
the FTT will actually work yet. There are many details, such as which asset
classes will be affected, will it be limited to certain counterparties and
whether market makers will be exempt, which need to be fleshed out first.”

Though
it was widely expected that the ECJ would reject the move, Morley-Smith said
the challenge, which was made under legal advice, was largely made to help the
UK protect its position, by enabling the government to renew the challenge in
the future.

“This
legal action sends a clear message from the UK to its European counterparts
that it views the FTT as a tax on consumers, on savers and on pension funds,”
he added.

But
Juan Pablo Urrutia, managing director and European general counsel at agency
broker ITG, said he was disappointed that the ECJ dismissed the case on
technical grounds.

“We
shouldn’t be in a position where the highest court in Europe, the European
Court of Justice, is going over technical implementation details of the FTT
before it considers the merits of the UK’s case. It is important to recognise that the ECJ is
not a court of first instance; it should be in a position to provide a ruling
on the key pillars of the EU treaties.”

Urrutia
said the ECJ should be able to pass judgement on whether individual European
nations can create taxes that can be applied to investors in third countries
that have not agreed to them.

Further
details of how the FTT might look are expected to be revealed next week, when
the European Union’s ECOFIN Committee meets to try and reach agreement on key
issues surrounding the tax.